A College Student's Guide to Investment Accounts
You worked your behind off all summer and you have some extra cash. You want to be careful to not spend it on beer and parties all year so why not invest some of it? If you invest money now, say around $1,000, it could be worth around $13,000 when you retire. Investing is a great way to save for the future as long as you are disciplined and responsible about it. You do not need to put a lot of investment in up front and it requires little effort or time ‐ just a small tolerance for risk, a little time for making the investment and a dedication to wait for the money to compound.
You can open an investment account in many places and for many costs ‐ even free. From buying stocks to making use of mobile apps that allow you to invest as well as traditional bank investing (if the bank has a brokerage within), the possibilities are endless.
But this post is less about the where and more about the what (or which). Which types of accounts are best for college students to consider for investing?
The first thing you need is a brokerage account as investing cannot be done without one. Below are the options you have once you get signed up for an account:
Cash accounts are the most basic type of account. They allow you to purchase any type of security of your choosing to be used with your cash on hand. This is a suitable option for the majority of investors ‐ especially those who are just starting out or who don't want their money locked up until retirement.
Margin accounts are similar to cash accounts with the exception of the type of funds you use up front. Margin accounts require you to borrow the money in order to invest. These accounts do offer some features cash accounts do not have, including shorting investments and selling uncovered options.
Traditional IRAs are the traditional account vehicle of retirement accounts. Similar to the cash account, you can purchase securities with cash on hand, but it places limitations that you can't withdraw monies until you are at least 59 ½. You will get a tax benefit for any money invested up to the limit. You will have to pay taxes on any money withdrawn once you do retire.
Although similar to the Traditional IRA, the Roth IRA does not offer tax benefits the year you invest but your withdrawals are tax‐free!
For help deciding which type of investment account to open as a college student, contact us today.